Federal Signal (FSS) 2 Nov 232023 Q3 Earnings call transcript

Good morning, and welcome to the Federal Signal Corporation 2023 Third Quarter Earnings Conference Call. All participants will be in listen-only-mode. Should you need assistance [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Felix Boeschen, Vice President, Corporate Strategy and Investor Relations. ahead. go Please

the welcome Hudson, Call. and of Signal's Quarter Executive me Third Strategy our Jennifer Good and Chief President Felix to Financial Boeschen, Conference Chief on with Also I'm Investor and President today the XXXX is and Sherman, Ian morning, Officer; Relations. Federal call our company's Corporate Vice Officer.

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remind to and the the release harbor today's available on Before some may and Signal's our like that website. in today made in with These begin, of safe subject forward-looking Securities comments I'd statements are Federal Exchange are news contain Commission. to you documents language found that our we filings

to contains measures. presentation we not U.S. with reconcile accordance and Principles. that non-GAAP earnings Accepted measures Accounting these measures Our in Generally In filings, are our some also release GAAP

XX-Q turn up the questions. the our to In Ian. for will and provide an margin quarter update to detail remainder addition, on the over Jennifer to would lines conditions, will market results call to later comments, file targets our before by on to providing I over today. Form performance, we Ian going now With our third for outlook today we year. is our begin some turning current of the updated our open call the that, like After prepared

Felix. you, Thank

was increase year. QX SSG's reported margin year. of ]In QX million to this quarter sales $X.X year. last from representing intake or ESG or XX% for quarter of total share in with improvement basis XX.X% quarter XX% up That in compared XX% for operating for million, year. was the million year. XX% compared or million the in quarter increase and or was were were last was last margin or up of the for to translates of ESG's basis, quarter Order quarter $X quarter year, XX% of again of was per compared for from $X.XX to or per of up up million an the or from Net year. share for compared $XX for income quarter or from million was million for million, $XX.X the quarter XXX the the million an $XX.X That QX $X.XX orders up of last last XX% year. the $XX the last orders for million, to quarter $XXX to XX.X% ESG's year. net up last billion million sales GAAP quarter a $XX and in or earnings and our $X.X margin EBITDA last $XX.X XX% last up EPS last or EPS, XX% year-over-year to $XX equates expenses generation $XX.X to reported the sales results in improvement are an increase points adjusted compared record operating operating slightly third the EBITDA XX% in Consolidated million, to million, for release. last orders income and up was Consolidated or net the cash revenue an SSG million, XX% increase quarter outstanding, XX% from third year. million XX.X%, XXX% quarter of company for or a for was the last was our last terms conversion quarter today's million compared margin, consolidated QX quarter or million was million, quarterly adjusted with XX%. point for $XXX improvement quarter million XX% million $XX.X $XX $XX for $XX.X to last excess SSG's year, increase Consolidated compared XXX last new year, the we last for compared in results, group records compared or year. million, last and Our XX% million, Organic for $X.X last EBITDA of growth to year, quarterly year. was That compared to net to or $XX results income EBITDA the the million significant a increase adjusted were EBITDA compared to The million an quarter end $X.XX share, year. compared last net the $XX up $XX million, $XXX this XX% cash to was up year. XX.X% sales of million, operating year. In for quarter adjusted mark of quarter an quarter in XX% XX% $XX last QX compared $X.X were year. and year. of was $XX.X adjusted to the Orders $XX.X this or provided $XXX share, translates year. an of year. summary, up $XXX SSG million up this $X.XX to $XX.X EPS million million per for the up year. year. financial basis XXX Corporate On million of for Backlog adjusted strong, adjusted or from $XXX again income at per were the ESG's QX QX XX% an $XX points EBITDA basis from an

profit. XXX points in gross to for the the last was up improvement in Turning increase the to statement, margin $XX.X year. gross now Consolidated income a compared to basis quarter contributed million consolidated where sales XX.X%,

a year last affecting items Tax income discrete selling, our in of $XXX,XXX $XXX,XXX the the with interest general million a $XX.X $X.X primarily quarter the expenses points compared in include expense, down $X.X for expenses, quarterly prior in engineering, the due in results the year, sales, increase Other were and and expense administrative million tax and a year. in increase increase amortization year. was quarter the expense. As last pretax an the for increase from of to compared recognition to increase to other a higher $XXX,XXX XX basis million expense percentage benefits current quarter fewer acquisition-related QX levels

$X.XX earnings to $X.XX items. In typically per On the earnings made earnings per this per time, for with the current to rate year earnings facilitate basis, share in in compared per the year. year therefore year quarter full adjusted per last current QX we rate year. At an share expect items with our expenses. GAAP basis, year prior excluding share our last year. per approximately GAAP quarter, this this in we XX.X% adjust comparisons, we for unusual was tax exclude quarters. to To our compared or quarter compared XX.X% share Our for be last any acquisition-related recorded was adjustments share GAAP earned the $X.XX overall discrete On to tax additional $X.XX QX XX%, we effective effective share

generation X generated the operations brings $XX we an Looking $XX million million, working with to cash from year, increase quarter, capital $XX last cash primarily year. million at flow, of during months net year-to-date the due operating first now XXX% improvements compared our and That the cash last increase increase of higher of an to to of from income.

the debt our during ending million. facility cash and $XX availability under million paid With credit of of the $XXX million net we QX, with down quarter $XXX of improved flow, approximately debt

growth Our current remains initiatives, opportunistic the note, share, announced a leverage of million to $X.X paid we we cash $X.XX for repurchases. dividend similar net acquisitions invest of On and significant the our dividend and return share fourth remaining per and in low. to With reflecting quarter. pursue that stockholders financial a dividends we recently strategic have flexibility quarter, debt through position strong, organic during dividends

That call $X.X to We like I now also during concludes repurchases comments, funded the Jennifer. of the quarter. to my would million over turn and share

I Ian. team. begin to welcoming by to like our Felix you, would Thank

proud a with groups. levels Within operating are across increased sales profitability able compared robust operating quarter sales volumes, improving sales another Group higher our to record-setting contributions increase net both and increase year. and demand year-over-year strong of from in XX% report enterprise, realization, production supply in We Environmental in and recent acquisitions, and supported to the XX% strong price Solutions deliver a results to to income last thanks our chain we're aftermarket

constraints as business. quarter chain on mentioned remained and supply our that As impacted shortages be during chassis dump third medium-duty continued our component pockets have fluidity constraint body truck call, a availability particularly the to last of there

by improvements combined are Elgin X encouraged XX% However, the Streator production our up third business units at and largest a facilities year-over-year. facilities quarter with the leading we production charge manufacturing with across ongoing our our

Elgin's average has daily despite fact, fluidity, build that September since a of highest October. February into chain In continued the supply marked rate XXXX, trend

agreement our And as remainder UAW expect XXXX. the a we was businesses a reach such, adverse the impact to pleased recent are for with Detroit We on automakers tentative able nominal that days. in currently of the

which chassis use includes to certain business chassis lighter-weight and our public perspective, business our exposure businesses, of some our safety For units within source truck with SSG. domestic dump UAW UAW

aftermarket also facility police in as the QX. continue some revenue in TruVac reminder, supply approximately believe in XX% completed scheduling quarter years, demand. ESG within seasonally and capacity a strong picture, equipment during in is were incremental public chains absorb expansion recent expansions orders volumes XX% the improve. capacity our used Bigger vehicle large at strength position exceptionally typically us in with a we our year, quarter, sales what temporary last scale domestic previously As Illinois, with XX% our revenues quarter. in revenue represented including had year In particular well continue our model our changeover parts to fourth to of we Streator, Vactor business over that moderation anticipated Forward a Aftermarket up safety to

addition recent during to Acquisitions its with strong our acquisitions In top million added also $XX line organic trackless, recent growth, to contributed approximately start. quarter. most our completed, the acquisition strong our continuing

XX% improvement with Systems margin upper the adjusted range last end quarter basis EBITDA during point our top Safety a delivered margin results XX.X% raised line year. target Group XXX and Security the toward recently to of an Our of and compared and growth impressive SSG again

expect our As mentioned of dollar SSG, associated are benefits to with to on our investment suppliers. savings last safety a cost in reduced became investments quarter, on public reliance line further achieving line, including third third and we into beginning call, see equipment, see operational production of printed volumes the the increase production multimillion board circuit new offshore the benefits and we addition during year. the next to The

going $XX Lastly, continue levels, offering our remains more are exceptionally coupled the conversion in free flow and conditions particularly across should quarter, of cash annual generated from markets. ongoing of reflecting pleased current XXX% to cash we for intake end basis, now the market substantial strong result range representing capital cash with our with million with operations, $XX quarter million cash of product net where Shifting which third in demand $XXX we forward million, income. our strength XXX% expenditures On generation. our an when normalized target to conversion having

extended. methods for demand to move and to this our we And are a demand. as of are impact Within levels benefits the several markets, increasing announced continuing to to year. the continues see demand use for an Recall, United more talked pipeline, tailwinds remain Safety upfit and of Systems in public substantial our in safety order may of continue the continuing a and on funding to primarily from our of our for Bauma, safe maintain including In variety earmarked and lead More XXXX governments equipment public team compared while the believe more spanning quarter, billion from $XX $XXX and aim coupled products. be demand, quarter-to-quarter. to Spain a currently third rising Within are charge certain substantial a were sewer in there suite SSG and the future important digging trends our municipal Security government projects. infrastructure sales cleaners, Group, essential driven such encouraged for previously, last macroeconomic opportunity This, we us our Rescue in XX,XXX the than years. lumpiness by quarter. local Signal billion dealer sizable of a all, to and digging demand we sewer state, we $XXX demand and bipartisan we the products, excavation for remain street from execute business, unprecedented quarter intake. American about of purposes, infrastructure sweepers hydro for tailwind award across with backlog led orders may broad-based comparability are more our that which in the the year, revenue partners businesses, but rose commercial lead for XX% see we've production the trucks healthy X% and safety and All for $XX in bill our in rising business dealer billion proliferation remains and build some adoption was XX% equipment consequently, and booked times funding its levels. to the during compared times about up contributing States infrastructure team order the order robust As streets. also European strength ESG end with and in which dump total than bodies. and Strength as markets the truck reduce orders remains partners year-over-year, many With primarily leaves we demand we regarding focused demand commercial of even for and The to Plan, cases products billion believe the systems strong on industrial excavation current future our experiencing, bipartisan broadly, maintenance optimistic we multiyear was further as rising of safe our on orders orders to the we and as see forward, increased back Federal territorial a more bill optimistic to coming last pronounced

laser-focused new product remain also initiatives family our development, electrification on teams Our across including vehicles. of

remains largely our to to street within next end sweepers, While Bear Broom pleased markets for in business, its Pelican we we hybrid and year. be electrification infancy, which in orders and our electric are are all delivery EV quarter several across our gradual, sweepers expect sweeping both adoption earmarked announce of our orders including fully the for

We is all, and remain several growth the also working despite about Above electrification rising macro believe ongoing projects in uncertainty the broader geopolitical excited strategy we other world. in pipeline. our

and are recent forward increased results aftermarket diligent processes our all production continue output. include should visible growth, initiatives strategic Our drive in new product benefits to and development XX/XX incremental see going as we

In active array addition from completed to gains we see an including future drive organic growth, and of recently external pipeline levers, M&A to efficiency also an acquisitions. opportunities

TowHaul our serve of also including global Signal, in marked strategy. forms acquisitions million on annual other multiyear an M&A annual recognize $XX have distribution, M&A metal Ground we already. and the growth are our across by material for important with to we as synergies we encouraged swift Federal and believe businesses green initiatives. vehicles acquisitions excellent support a for believe synergies disciplined to we Shortly cycle. the any but in which example both revenue this we from our businesses. Toho into fares of and XXXX sales which Similar equipment company our year strategic an of ground implemented business objectives acquisitions, several Ground about fact, and we integration setting which on overall. example and arena targets, over pleased and through within ground and I with guidepost of intention revenues to are benefit only progress XX% ranges of Recall, at set some basis and in cost pipeline. and we reduction this optimization, remain across both operated opportunities strategy margin electrification associated operate These as was an in initiatives. of our the market, costs an both ongoing be million approximately our of these believe In flat we targets we TowHaul tailwinds, Force with form became major ranges given do and force active after at Not force In the margin recent mineral $X of short, represents EBITDA seasonality will XXXX span parts M&A TowHaul with growth of believe the to our the target stands our track groups the entrance inherent of extraction In to other CEO,

We have annually exception including teams these through these our without above pandemic. or since to that goals. proud operated also I practices our the ranges am have say aligned within compensation XXXX, with

we've to and driving have successful strategies M&A. are we organic journey number been committed give build look a operational we take and There of growth building to we'll able confidence excellence, to of place. on as in We improvement. are step continuous our future, we us improve that next the drive in we to committed shareholder the be to As value-added blocks value to continuing remain working continue that on that the

for the our the continuous codification opportunity of years development our norm the operating aftermarket building in Today, to our to and the growth and we Systems the to the investments of for XX% year, on the facilities Safety previous previous of from from Group Federal to add range of business, success a system, new XX% initiatives, facilitate in Group are XX%. range a to EBITDA success range have driven, XX% margins product raised that optimization, XX% our targets lean Signal initiatives, this [Inaudible] range and capacity supply of our the Earlier from programs Security to which significant the Specifically, margin we includes to improvement of program. our our and recent chassis the reversion the margin M&A of XX%. mix Solutions XX% of XX% our new target to our in the a improve our XX/XX in EBITDA Environmental raising to and teams

enter next are EBITDA and on phase teams ranges we these the energized our laser-focused as new Our margin of growth.

several also American from the available bill. will funds to Rescue equipment We Act next Plan purchase benefit the the from infrastructure years and over the our public

of from As to ESG, our increasing margin the EBITDA for of a XX%. a previous also to the margin range consolidated increasing targets range XX% of we target to result new are XX% XX%

our for our aftermarket year. rest the high. remains and Turning offerings Demand our now outlook of to products the for

We our new quarter performance, continue And to to $X.XX with we supply range improving chain are current successfully execute initiatives. adjusted our a conditions, of range $X.XX of $X.XX. and the against $X.XX EPS to outlook to third from backlog strategic full raising year our our previous

time, We are full end to for by billion. At $XX low also I establishing this increasing range of net our range year $X.XX think sales outlook of we're a billion million, the new questions. Operator? ready $X.XX

then Instructions]. we to To question-and-answer a will this your begin We pause time, At our will now assemble telephone on the may you keypad. ask question, momentarily roster. session. one [Operator press star

Markets. Steve Capital question with from first comes Barger The KeaBank

Hi, actually More Jacob this is today. on for Steve

grow. First, names over there, other just your yet be the normalizing just seem to larger backlog pipeline out machinery rolling on of some order or and to numbers continues sort of

be but larger seems company. a pretty I my long So structurally to this what is go? how Signal be think assume successful that can into strategy there it's term, over a to Federal will to safe the cyclicality be question growing appears really far

that orders you when So "normalize" think like? eventually start do and what backlog to baseline your looks new do

Yes.

remarks in we times. now in things Jacob, we big lead to of times And the right those one a the reduce prepared trying currently. think, mentioned I have That's is improving achieved a our chain chain increasing supply the to lead that seen more has production of that and third improved, increase during really function been has as quarter. us helped and to get out, units output supply we've that's focus

I up production X facilities XX% were year-over-year. at levels think within the we talked largest our about ESG

with. really reduce backlog we were $XXX and was It during the saw times really lead those we want we intake. that the to healthy XX% And up million that level. year-over-year and pleased intake while So maintaining that quarter, order order

we're where the the be want than So the right what I looking to in think with it at position for a customers times one at to talked we that's units about, deliver rate now the we currently. a to potential that infrastructure our the faster future lead build

of we the big some really ours that's so reduce next see that several lead from And with times of the focus years to is the those over potential the bill. infrastructure

add I'd there's there, our chassis the businesses, as And normalize I see TBI we pent-up think we for demand. guess situation

upcoming in XX/XX some think And to that be and so we've really able done, also improvement of we'll from And with in in that benefit deliver those we've years. positioned quickly the initiatives the ourselves we efficiently to businesses. particular,

future? chassis up of about, that helpful. question. glad sure the that planned could And past availability pretty what ensure If throttle issue this in to pretty That's look my Understood. talking have that brought this Jennifer, the I'm second significant I'm tired you production you're doesn't we because you governor was to growth do changes

Yes. as the A we'll what we chassis-agnostic, One in we're on chassis. to it's this build couple the anybody's about And we've of important do. remember think I things. talked of nature so is, past,

is If we it value-add of you look the what component significant. at contribute,

business. not of of thousands We're about number. So Elgin, about and finite Roadstrike for Vactor chassis. tens we're talking our not talking a It's

chassis a bit chassis dump we development since We Class product to new dramatic been our we've a we've expect that With chassis pretty TBEI. new had availability, X And diversified the business, for on other some improvement the on chassis. chassis, of a and focused base truck line, at quite new seen finally, and to continue. class, respect And have owned new in is be have new initiatives we A on we an Isuzu diversify We've an effort would product kind good to chassis we've continue to example base our Elgin on our building forward. that move business. which as development it's made product new us. on point introduced

good mind years. job of couple manoeuvring the pretty of of last a So for We've us. through done something that's it's top

it chassis. going and say, they've improve able of in then We forward. played procure see have dealers this And terms finally, would to I all customers our an important expect role in to been also

move multi-pronged as place. So solution. pretty a in I forward, think we But it's we're a good

The Securities. CJS with comes question from next Chris Moore

real I'm to growth volume? And how obviously, and Roughly, trying forward? has great then what down terrific price years, Maybe the would just the QX. between does a last just of understand, be that price quick, growth normalized in break been more mix violent moving between couple

Yes.

for so the look Chris, about at top the XX% or line X%. of that year-over-year if you XX% that the a organic of would and growth was was then about So then quarter, about was growth, between increase. $XX about X% $XXX then and component down XX%, million, that's break of chassis so organic The was about volume price so million

X components are the those that organic major of So growth.

that higher 'XX is Going as the And go be with we'd then we that I to certainly we price in as just expect X% to into that the typically X% we have, about. range. obviously, the increase as to forward, production, volumes backlogs talked the look

will organic of So probably biggest would volume, volume the expect be as the the we look 'XX, to part we growth. that that of

Very it. a bit EV Got little you side. Maybe helpful. the on talked

customers like just given is battery for factory postponing including building, in were planned their pay factory the of unwillingness billion vehicles. Kentucky, Ford $XX extra reasons electric something So a like EV to in

sense time for it's this wanting are ultimately that are in know I meaningful to a Just revenue. wondering, you going any any there? still sweeper? if electric if customers Any of point pay that component into and to wondering just the be much has to impact more believe thoughts early carryover EVs

Sure.

So number goals that we manufacturers. a and availability, We're committed we We prepared be the part as ESG With products available. to helping customers assumption governmental respect to my I of going the it's adoption remarks, chassis of that meet critical very have products that think that of different kind is to of solution. strategy slow. referenced our our chassis working deliberately our they've EV have established particularly be in can with

solutions has to is government vehicles, a across our suite multiple lot that initiatives of and done So we we've for feedback And got of With willingness we of many our test flexibility are in demos. pay been there products of looking to the providers, interest. the funding and us terms respect believe for of with our to gives additional different customers electric forward. as those great assistance We've gives vehicles. different opportunity move us that, customers'

The comes D.A. Mike from next Shlisky with question Davidson.

that about start that off made. on to comment you Wanted EVs just

market So in couple I'm providing curious the X months no adjusts California in you California. the regulation be dealerships that vehicles can of January new the over from non-EV, as of point selling disruption start in anymore in reality XXXX axle to you little some the California as truck that EVs with worried any there? bit Or are about sold that deliveries are X, OEMs space about restrictions there in to first X strong so the very ICE within on forward? a starting have contacts if in our with quarters first quarter or

Yes.

for something been that's California. in has dealers this and mind So both of been our top us

Mark We've OEMs. Weber. met chassis team a Officer, Operating our have cross-functional with various the by We Chief led that's

got orders in the that to we've a referenced products I offer the And California. EV So available coincidence those it's call, that earlier California. not are some from in of

those So and continue working OEMs chassis positioned a to present we well on product. to respond think to very with we're plan to this compliant

mix kind yourself of is feel or you've on the now, I kind the or up got positive out get that range a to also the Is coming do early gate very implement here. They you things other end year of what's to a of of higher that your ESG. the for a lot higher gate follow XXXX, at that at the out to range right look stage of to XX/XX in Okay. of you the margin backlog wanted great of targets. half get

Yes.

I when Mike, of multiyear are we similar first in all, targets, think, them these introduced XXXX.

now I consistently prior think above during including X is talked the the XX%, of we've about we've midpoint years been as operating been which for range call, on the pandemic. we the the offering, over

you disruption EBITDA QX margin is record EBITDA that in by But And strength our this but seasonally that typically far, see. year as standpoint was strong level with some a supply is that's weren't, a at we means, all We a year-to-date If look from an XX.X%. from still of There firing was any QX, largest said, softer aftermarkets. is despite of we a the strong QX facilities. typically on chain all with cylinders. margin at our standpoint, margin so had QX

now So to we realizing feel room is conditions are increase that think time there right the is not the and that to we targets, still grow, optimal.

there's yes, to we a production operating the recently to XX/XX capacity as We the can about acquired piece. the which growth is business. contributions add margins. of think be aftermarket And to from think we the leverage think some increased accretion the increase some additional also, think businesses, meaningful impacts there's We going expansions. going be from we So with

that primary so confidence think are factors And we the the those raise gave margin us those targets. to

chassis there's I is would respect mentioned about chassis then earlier, pent-up buying patterns one thing businesses. The on the to I also add, truck in talked with too normalized add available, as demand supply, dump more as our earlier would believe of And that I a our become Yes. more kind we we call.

Burns Greg from & comes question next Sidoti Company. The with

improve rates How there Streator far is mentioned are Like production much rates these you? of at You below how at facilities. facilities? those more other or some production capacity your of like the to maybe of full in unit production room improvement some

Quite a bit.

number Build to productivity at improve expansion before, We're backlogs have, targets. a of at We EBITDA that focused talked lot did there's Trucks. very we've what believe decision facility. Elgin to a improvement We're in we forward. we upon call about a increase of opportunity pieces on it's the And given one XX/XX of doing we we foundation bought XX% Streator. BMT, at the we As building More the terms going And relied capacity number of the our margin initiatives Elgin. that our of a initiatives,

solutions? Or those is the patterns more of digging, then And this that safe any around strong growth market of the just driving driver Okay. aware seeing a terms in that quarter? there demand function the specific order order you're is becoming of of types

use I encouraging. is, a number One to increase, cases things. It's number that's and think continues the of of

We demos. continue product to focus on

Ontario, done going to adoption we're of available in and the the several nice that mandated largest some to combination think market years hydro-excavation still best practice, see phase install And that. not is applications. some line. states again, coincidence increased next in a educating over recognized it plus early have continue job the use have government in the and funding that U.S. we'll where base that our insurance be we product we believe dealers Canada, nice cases, some the of as of growth really the our OSHA in And XX that's regulation, about in it's a but Our very it's a U.S., for really

The next question comes from Dave Capital Storms Markets. with Stonegate

Good James morning. John This is in stepping for Dave.

structural, talk which discretionary? which initiatives about touched is you savings. early those It are the ones Can on are you hear temporary, in the the call. XX/XX So cost more about to good

Yes.

think initiatives have a of we've XXXX critical hired we I one Signal Federal at in resource. dedicated is Corporation the

we're codifying includes constraints Federal initiative. which operating model, our cross-functional the and of We and team, series Signal our XX/XX lean our have a initiative,

So continuous we're annual through important in our margin kind is this basis And factors about an to kind phase at cycle, of raising we that think, the going forward. excited we're one as it future improvement was the next for catalyst, of efficiency look at we of it looked really an those journey. going targets

the to like would I remarks. over session. for to question-and-answer back our closing any Sherman concludes conference Jennifer This turn

as us a our moment to Collectively, we distributors. dedicated continuing improve soon. remain to Thank Thanksgiving Thank you shareholder spend and employees, and value. for to you. In talk I this customers thank loyal want you to committed today, enter season, we joining we'll dealers closing, to and

conference The presentation. today's now has Thank you for attending concluded.

disconnect. now may You